The Great Baby Boomer Sell-Off is About to Begin and Change Everything
The American economy is
about to be completely disrupted by a tsunami I like to call “The Great Baby
Boomer Sell Off.”
The concept here is
both simple and inevitable; people tend to sell stuff off as they get older.
There are around 74.9 million Baby Boomers and they are definitely getting
older.
The standard definition
of a “Baby Boomer” is a person born in the 20 years after World War II; defined
as either 1946 to 1964 or 1945 to 1965, depending on who you ask. That means
the youngest boomers are 51 to 52 years of age, while the oldest are now 73.
DYI: [Today’s age range; 59 to 79 with appx.
10,000 boomer’s turning 65 per day.]
The Biggest Yard Sale
in History
The aging of the Baby
Boom will have many profound effects on the economy; the first of these to be
seen will be the biggest yard sale in history. This will occur because people
dispose of assets in three phases as they age.
The first thing older
people get rid of are personal possessions such as clothing, furniture,
vehicles and collectibles. This is already occurring big time as anybody who
has checked out the prices of comic books or coins on eBay in recent years
knows.
Such a trend will heat
up as Boomers sell their homes and move to Florida, downsize to smaller places,
and start moving to retirement or communities or care homes. Basically the
price of collectibles, antiques, vintage clothing and used furniture is about
to collapse as the market becomes flooded with such items.
DYI: The only reason that
residential real estate has not collapsed is due to Fed policy of sub
atomically low interest rates that only ended until recently. Extreme pump priming fiscal spending has
taken over from where the Federal Reserve ended – [with the obvious sky
rocketing budget deficits pushing our national debt to 34 trillion].
The Great Real Estate
Sell Off
After possessions, the
next thing that aging people tend to dump is real estate. They first unload
rental, business, investment and vacation properties, but eventually sell their
homes.
The real estate sell
off will come in three waves, the first of which is under way and may not have
much impact. This phase consists of people selling homes so they can migrate to
the Sun Belt, or downsize to a smaller home.
Such selling has little
effect on property values because people can take their time to sell. We might
be seeing some effect from this selling in cities like Denver and San Francisco
where aging boomers are cashing in on high real-estate prices.
The second wave comes
when people have to leave their homes because of financial or health reasons.
That is they run out of money, can no longer physically maintain the property
or need to go to a nursing home or move in with the kids. The third wave will
come when the Boomers die, and their heirs want to unload the home.
Real Estate Prices are
About to Collapse, thanks Boomers
The second and third
waves should scare us because a lot of property will be sold fast. That will
depress prices and deflate the real estate market. A similar scenario is
already playing out in Japan where home values fell by 60% over the past 30
years, author Harry S. Dent Jr. noted in his excellent book The Sale of a Life
Time.
Such selling will drag
down property values because many of the homes will be in places Millennials
and Generation Xers simply do not want to live. This includes farther out
suburbs, and places like Pennsylvania, Vermont and Upstate New York.
Expect to see the first
big wave of home sell offs begin soon because one in three Americans; and
presumably one in three boomers, has nothing saved for retirement, Time
reported. This includes the 52% of boomers that are planning to work longer,
The Motely Fool reported.
The only way a lot of
those people will be able to finance retirement is by selling their homes. The
first wave of sellers will be those whose plans to work longer are cut short by
health problems or job loss.
This sell off will
continue throughout the 2020s with home values hitting rock bottom sometime
between 2030 and 2035. Some real estate markets; particularly those in the
Midwest, California, Arizona and New England, may never recover from the
resulting collapse.
DYI: This real estate crash will be a
slow motion train wreck as prices are work down to lower levels whether in
nominal terms or real. Nominal is prices
simply retreating by x percentage or prices staying around the same only to be
work down by the effect of inflation (real).
My take is this will be a combination of a push and pull of both effects
nominal and real (after inflation).
Baby Boomers are about
to Crash the Stock Market Too
Disturbingly real
estate is not the only market that Boomers have distorted; they have also had a
dramatic impact on the stock market. This will occur because the third thing
that older people dump before dying is investments and savings much of which is
now in the form of stocks and mutual funds.
A big reason why the
S&P 500 has grown by 71.71% over the past five years is retirement
investing, mostly by Boomers. The amount of money managed by Vanguard; the
largest U.S. indexed fund provider, quadrupled over the last few years, rising
from $1 trillion to $4.2 trillion, The New York Times reported. Most of that
money is invested in stocks via indexed funds.
This investing extends even beyond American
shores; Australians had $2.2 trillion invested in superannuation or retirement
funds in December 2016. Since there are around five million Baby Boomers Down
Under, it is obvious who controls most of that money.
The collapse will come
when the Boomers start selling off all that stock to fund their retirement.
That might begin sooner than you think, disturbingly one out of four boomers is
already raiding his or her retirement accounts to pay bills right now, The
Washington Post reported. Up to 36% admitted they will have to pull money out
for nonretirement expenses.
My prediction is that
the current bull market will peak around 2020, and slowly fall off during the
2020s as more and more Boomers sell off stock. Expect to see a major Bear
Market in the late 2020s as large amounts of stock is dumped on the market by
aging Boomers. To make matters worse; around 12% took out loans against their
401K or IRA to pay bills.
DYI: As it stands now we have a massively
overvalued U.S. stock market the only reason it continues to defy this
generational typhoon the major players have formed cartels to enhance their
profits by jacking up prices greater than the actual inflationary increase. This cannot go on for much longer as our
citizens are now relying on credit cards to maintain their standard of living
with many using credit cards to purchase groceries.
Below is my sentiment indicator of the assets that are used for my model portfolio. Note that for the longest time bills and notes were not just in the dog house, but were a forgotten asset only to be rediscovered as interest rates lifted from their sub atomically low levels. It is my opinion that short term notes no longer than 5 years will out perform the U.S. stock market over the next ten years and gold possibly out performing short term notes.
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